Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: What is the CCA class for a computerized telephone system?
Position: It is a class 8 asset.
Reasons: Property falling into class 52 does not include property that is principally or is used principally as electronic process control or monitor equipment (including related system software), electronic communications control equipment (including related system software), or data handling equipment (other than such equipment that is ancillary to general-purpose electronic date processing equipment). The IP telephone and its related hardware are excluded from Class 46 because of paragraphs (a) and (e) of the definition of the expression "data network infrastructure equipment" in subsection 1104(2) of the Regulations. Accordingly, the computerized telephone system should be included in Class 8(i).
XXXXXXXXXX 2010-036206
Charles Rafuse
613-247-9237
June 14, 2010
Dear XXXXXXXXXX :
Re: Capital Cost Allowance
This is in response to your email of March 29, 2010 and our telephone conversation (XXXXXXXXXX /Rafuse), regarding the proper class in Schedule II of the Income Tax Regulations ("Regulations") in which a computerized telephone system (CTS) should be included.
A 100% capital cost allowance (CCA) rate for computer hardware and systems software acquired after January 27, 2009 and before February 1, 2011 was enacted into law by adding class 52. You have asked whether the new CTS (Avaya 1600 Series IP Deskphone) purchased by XXXXXXXXXX would qualify as a class 52 asset.
Based on the list of the equipment you provided and the information gleaned from a review of products on the Avaya website, it was noted that the CTS employed internet protocol (IP) telephones along with the related servers, catalyst switches, and gateways for internet telephony.
From a review of various websites the following information was obtained:
- The Avaya 1600 Series IP Deskphone product line supports only the H.323 signaling protocol.
- The H.323 standard provides a foundation for audio, video, and data communications across IP-based networks, including the Internet.
- Catalyst is the brand name for a variety of network switches sold by Cisco Systems.
- In telecommunications, the term gateway, in a communications network, means a network node equipped for interfacing with another network that uses different protocols.
- A network node is an addressable device attached to a computer network.
- The main job of a gateway is to convert protocols among communications networks.
- In computing, a server is any combination of hardware or software designed to provide services to clients.
- Bandwidth H.323 specifies a series of audio codecs ranging in bit rates from 5.3 to 64 kb/s.
- An audio CODEC encodes the audio signal from the microphone for transmission on the transmitting H.323 terminal and decodes the received audio code that is sent to the speaker on the receiving H.323 terminal.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.
Schedule II of the Regulations provides the various classes for depreciable capital property and the applicable rates of CCA. In particular, paragraph (i) in class 8 includes all tangible capital property that is not found in any other class.
The new class 52 generally provides for a temporary 100% CCA rate for property acquired by a taxpayer after January 27, 2009 and before February 2011 that is general-purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment that:
(a) is situated in Canada;
(b) has not been used, or acquired for use, for any purpose whatever before it was acquired by the taxpayer; and
(c) is acquired by the taxpayer either
(i) for use in a business carried on by the taxpayer in Canada or for the purpose of earning income from property situated in Canada; or
(ii) for lease by the taxpayer to a lessee for use in a business carried on by the lessee in Canada or for the purpose of earning income from property situated in Canada.
However, there are exceptions in that property falling into class 52 does not include property that is principally or is used principally as electronic process control or monitor equipment (including related system software), electronic communications control equipment (including related system software), or data handling equipment (other than such equipment that is ancillary to general-purpose electronic date processing equipment).
Generally, an IP telephone and its related hardware are not included in Class 52 because of the exceptions mentioned above which exclude property that is used principally as electronic communications control equipment.
We are also of the opinion that the IP telephone and its related hardware are excluded from Class 46 (data network infrastructure equipment) because of paragraphs (a) and (e) of the definition of the expression "data network infrastructure equipment" in subsection 1104(2) of the Regulations. Paragraph (a) of this definition excludes network equipment (other than radio network equipment) that operates in support of telecommunications applications, if the bandwidth made available to a single end-user of the network is 64 kilobits per second or less in either direction. Paragraph (e) of this definition excludes network equipment that is end-user equipment, including telephone sets, personal digital assistants and facsimile transmission devices.
Accordingly, it is our opinion that the CTS should be included in Class 8(i).
We trust that these comments will be of assistance.
Yours sincerely,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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